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New York Fed to Allow Credit Suisse to Remain a Primary Dealer

By Andrew R. Johnson

Credit Suisse Group AG’s ability to serve as a counterparty to the Federal Reserve Bank of New York hasn’t been affected by the Swiss bank’s criminal tax-evasion settlement reached earlier this week with U.S. authorities.

The New York Fed considered the bank’s settlement and decided to continue its counterparty relationship with Credit Suisse, a New York Fed official said Wednesday. The official noted that Credit Suisse’s settlement pertained to activities that didn’t involve the bank’s broker-dealer business, and that the bank has taken steps to address compliance issues.

Primary dealers trade billions of dollars of government securities with the Fed every day, and must meet various broker financial requirements and other standards to participate.

Credit Suisse is one of 22 such firms. A spokeswoman for Credit Suisse declined to comment.

The firm keeping its primary-dealer status is the latest example of how the criminal guilty plea that the firm reached with prosecutors is designed to minimize the collateral damage that historically flowed from guilty pleas or criminal convictions.

Under a settlement reached with federal and state authorities on Monday, Credit Suisse became the first financial institution in more than a decade to plead guilty to a criminal charge. The bank admitted that it helped wealthy Americans evade taxes and agreed to pay $2.6 billion as part of the settlement.

The bank’s U.S. regulators also agreed to not revoke any licenses, which could have forced it out of business in the U.S.

Credit Suisse said Monday that it didn’t expect the settlement to affect its licenses or impact its operational capabilities.

A copy of a policy for primary dealers posted on the New York Fed’s website says that the “nature of its relationship with primary dealers is a counterparty relationship, not a regulatory one.”

The policy calls for firms to “maintain a robust compliance program, including procedures to identify and mitigate legal, regulatory, financial, and reputational risks.”

The agency won’t designate firms as primary dealers if they have recently been “subject to litigation or regulatory action or investigation that the New York Fed determines material or otherwise relevant to the potential primary dealer relationship,” the policy says. The New York Fed considers how such issues have been resolved and “consult with the appropriate regulators for their views.”

For existing primary dealers, the New York Fed may limit their participation or terminate a relationship if a firm becomes involved in regulatory or legal proceedings that the agency determines could negatively affect the relationship, the policy says.